Types of Business Leases: The Business Forum Show, February 13, 2014

On the February 13, 2014 edition of The Business Forum Show, Kevin Hunter and I discussed issues of commercial real estate leasing which are important for business owners.  You can listen to the discussion here.

Many business owners choose to lease space in which to operate their business.  In contrast to residential leases, Minnesota does not provide much statutory detail in terms of what is required in a commercial lease, other than it must be in writing if the lease term is more than one year.  Hence, the terms that make up a commercial lease are largely the product of negotiation between the landlord, the tenant, their agents and their attorneys.

Commercial lease agreements typically come in one of two varieties:  “triple net” leases and “gross leases.”

A triple net lease is a lease in which the lessee pays rent to the lessor, as well as all taxes, insurance, and maintenance expenses that arise from the use of the property.  In the typical triple net lease, the lessee pays a fixed amount of base rent each month as well as an “additional rent” payment which constitutes ½ of an estimated amount for taxes, insurance and maintenance expenses (also called CAM or common area maintenance expenses).  At the end of the lease year, the estimated amounts are compared to actual expenses incurred and an adjustment is made depending upon whether the tenant paid too much or too little through its monthly payments.

By contrast, a “gross” lease is a property lease in which the landlord agrees to pay all expenses which are normally associated with ownership, such as utilities, repairs, insurance, and (sometimes) taxes.  The tenant pays a fixed amount each month, and nothing more.  A landlord involved with a gross lease has likely factored in the various expenses when agreeing to accept a fixed monthly payment.

Whether a lease is “triple net” or “gross” is important in terms of what terms and provisions are included within the lease agreement.  Hence, consultation with a knowledgeable attorney is a must.

For more information on commercial leases, click here.

Archived segments are available by visiting The Business Forum Show page of my website, and be sure to tune in live (or listen to a podcast recording of the show) here.